“Content is king, and Microsoft is aware of this”: what Activision acquisition means for games industry
What does the $68.7 billion acquisition of Activision Blizzard mean for the industry in the long term? Will Activision games become exclusive to Microsoft? How will Sony and Nintendo respond? Is the race on to conquer the Metaverse? Analyst Joost Rietveld is here to explain.
Joost Rietveld, Assistant Professor in the department of Strategy and Entrepreneurship at UCL’s School of Management
How will the deal strengthen Microsoft’s positions in the metaverse race?
My research shows that acquisition activity tends to spike in the period leading up to the introduction of a next generation gaming technology. As the concept of the metaverse begins to take shape, Microsoft has positioned itself to lead the charge. By acquiring Activision, the tech giant secures access to some of the most successful intellectual properties (IP) in video games, including Call of Duty, Candy Crush, and Crash Bandicoot. And while cross-platform operability is increasingly common in video games — and a key requirement for the overall success of the metaverse — Microsoft can now preclude other platforms from offering those very hit games.
Firms seeking a leading role within the metaverse will be looking to develop and maintain their own virtual environments. These environments act as platforms in which creators create and end users spend their time and consume. Environments will appeal to end users when there is sufficient provision of high-quality content. I should also point out that no one really knows what the metaverse will look like, or who its market leaders will be. However, one thing is certain — technology alone is never enough. Content is king, and Microsoft is aware of this. By securing Activision’s properties, Microsoft increases its chances of becoming a key player in this space.
Will there be other video game acquisitions on such a grand scale?
The saying goes: consolidation begets consolidation. Microsoft’s acquisition follows another high-profile acquisition of Zynga by Take-Two Interactive just two weeks earlier. When the industry is close to introducing a new gaming technology such as a console or other type of platform, acquisition activity tends to increase.
Publishers and platform companies might not be certain what will drive the success of games on these new technologies, but, historically, hit franchises tend to be a fairly safe bet. Moreover, when one company goes on a buying spree that will increase its market share, competitors might want to counteract by making their own acquisitions.
Will Activision IPs become Xbox exclusives?
In the short term, no. Activision has long-term contracts in place with the other platform companies, Sony (PlayStation) and Nintendo (Switch). Development cycles for blockbuster video games span multiple years and these products are typically developed with specific platforms in mind. Microsoft will also need to appease antitrust regulators by convincing them that this acquisition will not materially alter the overall market structure of the video game industry or give Microsoft too much market power. This is a particularly salient point in a time when the Federal Trade Commission (FTC) and the European Union are closely watching some of the largest tech companies. For some reason, Microsoft has managed to avoid being scrutinized in most of the ongoing investigations, and it will want to keep it that way. In the long term, however, absolutely yes.
Microsoft has always been the least differentiated of the three console companies. Over many years, Sony has carefully built up its portfolio of game studios under its PlayStation Studios division. Nintendo has long been the most differentiated of the three console companies with some of the world’s most recognizable and exclusive IPs, including Mario, Donkey Kong, and Zelda internally developed. Microsoft will look to exploit Activision’s IP to differentiate and bolster its own platform brand. Exclusive content is the only way to do this. It also fits with the company’s objectives of Game Pass becoming the “Netflix of Gaming.”
How might Sony and other platform holders respond to the deal?
Nintendo has long given up on trying to compete with Sony and Microsoft. Since the early 2000s, Nintendo has made a conscious decision to do its “own thing.” Therefore, it is unlikely Nintendo will respond by acquiring an independent games publisher of similar scale. Sony might step up its acquisition activity by carefully evaluating some of the remaining publishers (e.g., Capcom, Konami, Sega). However, it should be noted that these deals don’t come about easy and that the success of acquired companies and their future products is far from guaranteed.
Video games are a cultural industry, and many factors that make a game successful can’t be quantified, this is referred to as the “nobody knows” principle. Company culture often is a key contributor to a product’s success in this industry. In an interview after shutting down an acquired studio, John Riccitiello, the former CEO of Electronic Arts, once said “Creative teams can be thought of as flowers in a hothouse — you move the temperature up or down a few degrees and the flowers will die.” Herein lies a key challenge for Microsoft — it must enforce cultural change at Activision, which has faced some rather sticky accusations of sexual misconduct and toxic work culture. Yet, at the same time, it must also maintain whatever it is that makes Activision’s video games so successful. Not an easy task.
